Now let’s put everything together and try to calculate the (projected) FCF of th
ID: 2797711 • Letter: N
Question
Now let’s put everything together and try to calculate the (projected) FCF of the firm LuluYoga for 2018.
Here is some financial information you have gathered with the help of your intern peers and supervisors at the investment bank.
The analyst team has been talking to the management of LuluYoga and they estimate that sales are going to grow by 5% from 2017 to 2018.
Financial ratios that will allow you to compute the different component of FCF are in the table. Use the historical 3-year average for all financial ratios as your estimate of the financial ratio in 2018, with two exceptions: ARDOH and APDOH. You talked to senior managers of the firm and are very confident that in 2018 AR/DOH will be 45 and AP DOH will be 20.
The corporate tax rate is 35%
2015
2016
2017
2018 (projected)
Sales
4,000,000
6,000,000
9,000,000
COGS/Sales
60.20%
60.60%
60.40%
OpExp/Sales
23.00%
22.80%
22.60%
AR/DOH
29
35
36
45
Inv DOH
45
44
46
NFATO
13
13.5
13.2
AP DOH
20
20
Initial inventory
196,877
Q3. What is the change in net PPE?
Hint: first calculate the net PPE in year 2017 using NFATO ratio. Second calculate the net PPE in year 2018 using Sales/PPE,net ratio, which you may need to calculate for year 2015 through 2017 in order to get the mean value for 2018.
Select the best answer from the following:
A. 32,288
B. 681,818
C. 714,106
2015
2016
2017
2018 (projected)
Sales
4,000,000
6,000,000
9,000,000
COGS/Sales
60.20%
60.60%
60.40%
OpExp/Sales
23.00%
22.80%
22.60%
AR/DOH
29
35
36
45
Inv DOH
45
44
46
NFATO
13
13.5
13.2
AP DOH
20
20
Initial inventory
196,877
Explanation / Answer
Sales for 2018= 9000000*105%= 9450000
NFATO ratio for 2018= Average of last 3 years= (13+13.5+13.2)/3= 13.23333
Net PPE in 2018= Expected sales/NFATO ratio= 9450000/13.23333= 714106
Net PPE in 2017= 9000000/13.2= 681818
Change in PPE= Net PPE in 2018- Net PPE in 2017= 714106 -681818= 32288
Option A. 32,288 is correct
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